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New Italian Budget Law: Incentives to transfer tax residence to Italy

The draft of 2017 Budget Law – not yet approved by the Parliament – introduces a special tax regime for individuals who transfer their fiscal residence to Italy.

The regime provides that any individual may opt for the application of a substitute tax (“option”) on their foreign income, if they have not been a resident in Italy for fiscal purposes for nine out of the last ten years.

Access to the regime is subject to the approval of the Revenue Agency through a specific advance ruling request. The Italian Revenue Agency will inform the tax authorities of the taxpayer’s last fiscal residence of the option.

The substitute tax:

is alternative to ordinary tax at progressive rates on the income deriving from a foreign source;

is alternative to the tax on foreign immovable properties and financial assets (so-called IVIE and IVAFE);

is applicable starting from the fiscal year in which the change of residence occurs;

is equal to Euro 100.000, to be paid as a lump sum for each year of option, irrespective of the amount of income earned abroad; such amount is reduced to Euro 25.000 for each relative of the taxpayer who applies for the option;

should be paid within the deadline for the final payment of personal income tax (usually June 16th); in case of default (even partial), the option ceases and the taxpayer cannot opt for the special regime again.

The substitute tax does not apply to capital gains deriving from the sale of “qualified” participations, when the sale occurs in the first 5 years of the option.

The taxpayer who applies for the option is not required to report its foreign financial investments and assets to the Italian tax administration by filling out form RW (a special part of the annual income tax return).
The taxpayer may decide to not apply the regime with respect to the income earned in certain foreign countries if a specific option is exercised in the ruling request or at a later date. In such a case, the ordinary tax regime is applicable and the taxpayer may claim the foreign tax credit.

The possibility to apply to the special regime lasts for 15 years and may be revoked any time; in such a case, the taxpayer cannot opt for the special regime again.

During the fiscal years in which the option is applicable, gift tax and inheritance taxes are due only on assets and rights existing in Italy at the time of the donation or death.